Financial Responsibility Options for APPs

An applicant may use any of the following mechanisms to cover the financial assurance obligation for an aquifer protection permit (APP). Use of the Templates provided below will expedite our review of your demonstration, but it is not required.

Please note: If a mechanism has a "draft" watermark, please remove the watermark before using the document.

Financial Test of Self-Assurance

This mechanism keeps the risk of covering closure/post-closure costs "in-house" with the applicant, leaving them responsible for covering the cost estimates. To qualify, the applicant must pass a test of self-assurance which will require it to demonstrate that it meets certain liquidity, debt, and/or net income ratios, among other considerations.

Performance Surety Bond

A performance surety bond is a guarantee by a surety company that it will meet the obligations of the applicant. Under the terms of a performance bond, the surety(ies) shall become liable on the bond obligation if the applicant has failed to fulfill the conditions of the permit.

Surety bonds are issued by a licensed surety rather than a bank and generally issued to cover a lack of performance rather than default on a financial obligation.

Surety bonds typically cost about two percent of the surety amount.

Certificate of Deposit

A certificate of deposit (CD) is a written acknowledgment of the receipt of a sum of money on deposit for a pre-specified period of time, which the depositary institution promises to pay to the depositor, to the order of the depositor or to some other person (i.e., a beneficiary such as ADEQ). An applicant should deposit funds to cover the full required amount of the financial responsibility unless the CD is being used in combination with other mechanisms. CDs are subject to FDIC insurance limits. If the cost estimates exceed the FDIC limits at any one bank (at the time of this writing is $250,000 per depositor), then it would be necessary to combine this mechanism with another mechanism or CD issued by a different bank.

Trust Fund

Under a fully-funded trust fund, money for closure/post-closure costs are held and administered by an impartial third party. The fund can be used to fulfill the entire amount of financial assurance responsibility, or it may be combined with other mechanisms to fulfill the total cost estimates. Applicants using fully-funded trust funds must provide the full amount of the assured costs. For example, an applicant must provide the entire amount required as per the cost estimates if the fund is the sole means of demonstrating financial responsibility. Banks acting as trustees of funds typically impose annual administrative maintenance charges between 0.1 and 1 percent.